The decision signaled the weakened position of the government led by President Asif Ali Zardari's Pakistan People's Party (PPP), which has been under extreme pressure from opposition parties threatening to force its collapse. The unpopular price increase, enacted in an effort to raise tax revenue as the economy floundered, was cited by a main coalition ally, the Muttahida Qaumi Movement (MQM), as its reason for abandoning the government last weekend.

Though the reversal appeared to constitute a lifeline for the government, it was just one of several demands made by opponents, who are widely expected to continue to drive the agenda. The defecting opposition parties praised the move, which Prime Minister Yousaf Raza Gillani announced in Parliament, but they did not indicate whether they would rejoin the government.

"It is a wise decision by the government. . . . The prime minister has shown courage," Haider Abbas Rizvi, a top MQM leader, said in an interview. But, he added, "the government needs to devise a comprehensive plan for the revival of the economy."

U.S. Secretary of State Hillary Rodham Clinton, however, called the decision a "mistake" that would damage Pakistan's efforts to stabilize its anemic economy.

"We believe that the government of Pakistan must reform its economic laws and regulations, including those that affect fuel and its cost," Clinton told reporters in Washington on Thursday. "We think it is a mistake to reverse the progress that was being made."

Gillani said the 9 percent fuel price increase that took effect Jan. 1 would be canceled immediately, adding that the decision was made after consultations with all political parties.

"We have managed to succeed in resolving this public issue," he said.

The main opposition party, former prime minister Nawaz Sharif's Pakistan Muslim League-N, said Tuesday that the government had six days to accept a list of demands. In addition to reversing the fuel price increase, the list called for slashing government spending and implementing sentences against top government officials who have been convicted of corruption.

Sharif suggested that opposition parties would band together to oust the PPP-led government if action was not taken to implement the demands within 45 days.

Analysts say any party would be hard-pressed to meet that timetable. But with the disintegration of the government's parliamentary majority after the withdrawal of two allies from the ruling coalition, the PPP has little choice but to at least appear to try.

The fuel price rollback, however, will force the government to seek new sources of revenue, as required by the International Monetary Fund in return for an emergency loan. It has already backed away from a sales tax proposal that opposition parties had assailed and is attempting to cope with a widening fiscal deficit by borrowing from the central bank. But that move has further angered the public by driving up inflation.

Gillani's announcement came as the suspect in the killing of the Punjab provincial governor, Salman Taseer, was praised as a "lion of Islam" by hundreds of lawyers and a crowd of religious party members who gathered to watch him arrive for a hearing at an antiterrorism court in the city of Rawalpindi.

Qadri's attorney, Wahid Anjum, told reporters Thursday that 500 lawyers - part of a segment of Pakistani society generally considered secular and liberalizing - had volunteered to represent Qadri for free.

A senior police official said Thursday that investigators were still trying to determine whether Qadri, 26, had acted with the help of his fellow police guards or at the direction of others. Anjum told reporters that Qadri had acted alone.

Top officials with the PPP, whose influence in populous and wealthy Punjab province has been weakened with Taseer's death, have suggested that Qadri was involved in a broader "conspiracy" to destroy the government and Pakistan's volatile democracy.